The renaissance of Australian gold miners

Writer: Aussie John

We’ve kept track of a host of gold juniors marching to market in recent months, as gold prices have bounced back to favourable levels, and previously uneconomic projects have suddenly become attractive for development once again. Empire Resources (ASX:ERL) has assembled a straightforward gold mining strategy that includes working with the likes of the $179M capped mining contractor NRW Holdings (ASX:NRH), who will undertake all open pit mining operations at ERL’s Penny’s Find gold mine. Under the terms of the agreement, ERL will now have sufficient funds to conduct mining activities through to the start of gold production. Penny’s Find is a JV project between ERL and Brimstone Resources, with ERL holding the 60/40 split in its favour. The Project contains a 470,000 tonnes @ 4.42g/t gold resource and has thus far delivered shallow highgrade gold from initial samples and has an openpit mine in construction stage. Yet it is still an early stage play and therefore investors should seek professional financial advice for further information if considering this stock for their portfolio. Interestingly the road that runs through the pit is currently being realigned and is only days away from completion. The KurnalpiPinjin Road ran over the openpit location, meaning the road had to be rerouted before digging could commence. An Underground Feasibility study is also underway to supplement ERL’s existing Bankable Feasibility Study (BFS) based on the open pit. The total cost of production, which sits at AU$1,086/oz. according to the BFS, is believed to generate revenues of between AU$29.6mAU$ 33.6m in the first year of full production. If all the cards fall in place the company could be cashflow positive within eight months and generate $7.6M in free cash flow in less than a year, with every AU$100/oz. increase in the gold price above AU$1,500/oz. leading to an additional AU$2 million in free cash flow. The good news for ERL is that the project is now in the final straight before production commences sometime next quarter. It’s most recent achievements to date include: A crucial road realignment on time and budget (scheduled to be completed in days) Site earthworks completed for laydown area for site offices and workshops Site earthworks completed for a dewatering dam and water supply. With project development at an advanced stage and results coming down the wire over the coming months; claiming a stake in this ‘Empire’ could be just what the bank manager ordered.

Keeping track of:

Empire Resources LimitedASX: ERL

Empire Resources (ASX:ERL) is a junior gold explorer that’s walking a path to gold production in the very near term and taking advantage of macro gold economics. Grabbing a share of the lucrative gold market is no easy feat. As precious metals aficionados know, gold is a precious metal with a very limited supply. Despite suffering a lot of market volatility in recent years, the yellow metal is back loitering at price levels that are conducive to strong cash flow. Take a look at gold prices, as measured in Aussie dollars:

This year has been a good year for gold despite the volatility — having started the year at around AU$1,500/oz., spot gold prices reached an alltime high of AU$1,857 in June. At the same time, like all commodities, we should point out that the gold price can also go down just as easily – always take a cautious approach to any investment in any gold stock. This year Aussie gold miners have done pretty well:

With the pullback now at a crucial phase, laying down some strategicallyplaced stakes in junior gold miners such as ERL might be just the way to go… …as gold continues to find support and remains on a gradual uptrend. The HUI Gold Index has finally found a bottom and has been clawing back losses made since the GFC.

If ERL succeeds in bringing in its first revenues from its flagship Penny’s Find gold project near Kalgoorlie, it could set the stage for ERL to continue its own development by providing cash flow for further exploration or to acquire other gold projects. Either way, ERL could be on track for a higher valuation as it tracks toward production. With most Resources plays — the devil is in the detail, or in the case of ERL, its gold project has some features that could well put ERL ahead of other gold juniors in the area. Let’s take a look at the real estate this Empire commands ERL is operating in WA — in and around the world famous gold fields surrounding Kalgoorlie and Coolgardie. Here is ERL’s Penny’s Find Project location on the map, sitting north east of Kalgoorlie:

If ERL can produce gold in this part of Australia, Penny’s Find could be a superb revenue driver for ERL’s early development. Currently, ERL is the operator of Penny’s Find on a 60/40 JV deal with Brimstone Resources, and will therefore reap the lion’s share of the spoils once this asset goes into production next year. Highgrade and nearterm All gold explorers are generally looking for two things: quantity and grade. ERL’s Penny’s Find has already shown shallow highgrade gold from initial samples, with an openpit mine currently in the construction stage. Then there’s additional underground potential with a Feasibility study now underway to supplement ERL’s existing Bankable Feasibility Study (BFS) based on the open pit. Here are some of the most recent results received by ERL:

The first round of RC grade control drilling at Penny’s Find was done in Q2 2016 with 86 holes drilled for 2,534 metres completed. This is the first of three grade control programmes scheduled in the planned 80 metre deep open pit. The programme was designed to better define the position of the gold zone from surface to approximately 30m depth and to increase confidence in the early mining phase. Let’s have another look at this Penny to see what’s involved, and more importantly, what luck it could bring for this ‘Empire’ ERL’s first drilling efforts have been upbeat. Grade control drilling is returning relatively strong results while intersections at shallow depths have exceeded expectations. That’s the kind of earlystage result we look for here at The Next Small Cap — strong early hits, plenty of drilling already done, and most importantly… …production to kickoff in the very near term. One other excellent feature is the fact that ERL’s Penny’s Find already has a BFS completed, which means investors are not jumping into the unknown. On the contrary, ERL shareholders have a stake in these independent estimates: